ch 9 smartbook

A firm has a 40 percent gross profit ratio, Net sales = $200,000, and Cost of goods available for sale = $170,000. Based on this information, which of the following statements are correct?

Ending inventory = $50,000 Gross profit = $80,000

A firm has a 20 percent gross profit ratio, Net sales = $100,000, and Cost of goods available for sale = $88,000. Based on this information, which of the following statements are correct?

Ending inventory = $8,000 Cost of goods sold = $80,000 Gross profit = $20,000

Identify the correct statements about the matching principle.

Expenses are measured by the cash or other asset used up to obtain the economic benefit they represent. Some expenses (administrative salaries, for example) are recognized in the period in which they are incurred. Expenses such as depreciation result from an allocation of the cost of an asset to the periods that are expected to benefit from its use.

Income from operations normally excludes the effects of which transactions?

Gains Interest expense

True or false: A cruise ship builder or a manufacturer of complex custom machinery can use the percentage-of-completion method to recognize revenue and costs and profits in order to avoid the reporting of misleading income statement information for a number of years.

true

If a firm's basic earnings per share was $3.00, net income for the year was $600,000, and the weighted-average number of common shares outstanding was 200,000, then the preferred dividend requirement for the year was:

$0

If Interest expense = $800, Cost of goods sold = $7,000, Depreciation expense = $1,200, Net sales = $10,000, and Operating income = $600, calculate gross margin.

$10,000 - $7,000 = $3,000

Based on the following information (amounts in thousands), calculate income from operations: Income tax expense = $10 General and administrative expenses = $30 Loss on sale of equipment = $5 Selling expenses = $20 Gross profit = $110 Interest expense = $15

$110 - $20 - $30 = $60 = $60,000

If Net sales = $12,000, Interest income = $500, Cost of goods sold = $8,000, Wages expense = $2,500, and Operating income = $1,000, calculate gross margin

$12,000 - $8,000 = $4,000

If Net sales = $12,000, Interest income = $500, Cost of goods sold = $9,000, Wages expense = $1,000, and Operating income = $2,000, calculate the gross margin ratio.

$12,000 - $9,000 = $3,000 / $12,000 = 25%

If a firm's net income for the year was $60,000, the weighted-average number of common shares outstanding was 20,000, authorized shares were 100,000, and the preferred dividend requirement for the year was $10,000, then basic earnings per share was:

$2.50 Reason: $2.50 = ($60,000 - $10,000) / 20,000

If Interest expense = $1,000, Cost of goods sold = $14,000, Depreciation expense = $3,000, Net sales = $20,000, and Operating income = $1,000, calculate the gross margin ratio.

$20,000 - $14,000 = $6,000 / $20,000 = 30%

A retail store's cost for a particular toy is $15.00, and the store owners have a 25 percent desired gross profit ratio. What selling price should be established for this toy? ​​

$20.00

Based on the following information (amounts in thousands), calculate income from operations: Cost of goods sold = $120 Marketing and selling expenses = $20 Gain on sale of land = $30 Administrative expenses = $15 Net sales = $200 Interest expense = $5 Research and development expenses = $10

$200 - $120 - $20 - $15 - $10 = $35 = $35,000

A grocery store's cost for a particular cheese variety is $3.00 per pound, and the store owners have a 40 percent desired gross profit ratio. What selling price should be established per pound for this cheese?

$5

The following accounting data is obtained from the financial statements of Synergy Company for the year ended December 31, Year 1: Net income $560,000 Depreciation and amortization expense 340,000 Income tax expense 150,000 Loss on sale of machinery 1,200 Increase in accounts receivable 14,000 Decrease in inventories 9,000 Increase in accounts payable 3,500 Proceeds from sale of land 40,000. Using the indirect method of cash flow presentation, calculate the net cash flow provided by (used in) operations for Synergy Company for the year ended December 31, Year 1.

$899,700 Reason: Net cash flow provided by operations = (Net income + Depreciation and amortization expense + Loss on sale of machinery - Increase in accounts receivable + Decrease in inventories + Increase in accounts payable) = ($560,000 + $340,000 + $1,200 - $14,000 + $9,000 + $3,500) = $899,700

On January 1, the beginning of its fiscal year, Wiggins Inc. had 100,000 shares of common stock outstanding. On April 1, 30,000 additional shares were issued for cash. On October 1, 20,000 shares of common stock were acquired as treasury stock (and are no longer outstanding). Calculate the weighted average number of shares outstanding for the year.

(100,000 x 3/12) + (130,000 x 6/12) + (110,000 x 3/12) = 117,500

On January 1, the beginning of its fiscal year, Wiggins Inc. had 100,000 shares of common stock outstanding. On April 1, 30,000 additional shares were issued for cash. On October 1, 20,000 additional shares were issued. Calculate the weighted average number of shares outstanding for the year.

(100,000 x 3/12) + (130,000 x 6/12) + (150,000 x 3/12) = 127,500

When revenues are earned, how are the financial statement affected? More than one answer may be correct.

An increase to Sales or Service Revenues An increase to net income

Under the current accounting standard, how are extraordinary items to be reported?

As a separate component of income from continuing operations

If Ending inventory = $500, Net purchases = $2,800, and the Cost of goods available for sale = $3,000, calculate the Beginning inventory (BI) and the Cost of goods sold (CGS)

BI = $3,000 - $2,800 = $200 CGS = $3,000 - $500 = $2,500

Identify the reason for which indirect method is preferred to direct method for cash flow presentation by most firms.

Companies do not need any separate accounting procedures to accumulate cash flow data when the indirect method is used.

Identify the true statements about the usage of the percentage-of-completion method.

Companies should disclose the use of the percentage-of-completion method in the notes accompanying the financial statements. A firm that takes more than a year to construct a sale item should use the percentage-of-completion method to recognize revenue.

The entry to record the recognition of cost of goods sold is:

Dr. Cost of Goods Sold Cr. Inventory

Identify the correct statements about the matching principle.

Expenses such as administrative salaries are recognized in the period in which they are incurred, because the benefit of the expense is used up simultaneously or soon after incurrence. Some expenses (cost of goods sold, for example) are recognized concurrently with the revenues to which they relate. Some expenses (depreciation, for example) are an allocation of the cost of an asset to the periods expected to benefit from its use.

If Beginning inventory = $300, Cost of goods sold = $1,800, and Net purchases = $2,000, calculate the Cost of goods available for sale (GAS) and the Ending inventory (EI).

GAS = $300 + $2,000 = $2,300 EI = $2,300 - $1,800 = $500

The "other income and expense" category is normally reported after income from operations and includes which items? More than one answer may be correct.

Gains Interest expense

What subtotals are commonly reported in multiple-step income statements? More than one answer may be correct.

Gross profit Income from operations

Identify the correct statements about a periodic inventory system.

In a periodic inventory system, the Purchases and Purchase Discounts accounts are used. In a periodic inventory system, the cost of ending inventory is subtracted from the cost of beginning inventory and net purchases.

Income from operations normally excludes the effects of which transactions? More than one answer may be correct.

Income taxes Losses Interest income

The "other income and expense" category is normally reported after income from operations and includes which items?

Interest income Losses

Identify the correct statements about a periodic inventory system.

Inventory on hand must be counted physically to determine cost of goods sold. The cost of inventory on hand is determined after a physical inventory is completed. Inventory on hand is typically counted at the end of each fiscal year.

The following accounting data is obtained from the financial statements of Excellent Company: Net income $560,000 Depreciation expense 340,000 Cash dividends paid 409,000 Gain on sale of machinery 1,200 Decrease in accounts receivable 14,000 Increase in inventories 9,000 Decrease in accounts payable 3,500 Proceeds from sale of land 40,000. Using the indirect method of cash flow presentation, calculate the net cash flow provided (used) by operations for Excellent Company for the period. Multiple choice question.

Net cash provided by operating activities amounts to $900,300.

If Purchases = $3,500, Freight-in = $400, Purchase discounts = $100, and Purchase returns and allowances = $200, calculate the Net purchases.

Net purchases = $3,500 + $400 - $100 - $200 = $3,600

Advertising expenditures and research and development (R&D) costs are recorded as expenses in the period incurred under U.S. GAAP. What concepts justify this approach?

Objectivity and conservatism

If Freight-in = $600, Purchase discounts = $300, Purchase returns and allowances = $200, and Net purchases = $5,000, calculate the Purchases.

Purchases = $5,000 + $200 + $300 - $600 = $4,900

What principal categories of other operating expenses are frequently reported on the income statement?

Research and development expenses Selling expenses General and administrative expenses

Starting with gross sales and arriving at net sales, which of the following statements are true?

Sales returns and allowances are subtracted. Sales discounts are subtracted.

Concerning the direct method presentation of the statement of cash flows, which of the following statements are true?

The direct method lists each major class of cash receipts and cash disbursements transactions for each of the three activity areas. The operating activity transactions include cash received from customers and cash paid to suppliers.

Which statements are true regarding the time orientation of financial statements?

The heading of a statement of cash flows might read "For the year ended December 31, 2018." The income statement is prepared for a period of time.

Concerning the direct method presentation of the statement of cash flows, which of the following statements are true? More than one answer may be correct.

The operating activity transactions include cash paid to employees, cash payments of interest, and cash payments for taxes. The FASB encourages companies to use the direct method. The direct method involves listing each major class of cash receipts transactions and cash disbursements transactions for each side of three activity areas.

Which of the following statements are true regarding the time orientation of financial statements?

The statement of cash flows is prepared for a period of time. The balance sheet is focused on a point in time.

What are some common causes of inventory shrinkage?

Theft Errors Obsolescence

Which of these are true, regarding financing activities in the statement of cash flows? More than one answer may be correct.

They relate primarily to changes during the year in nonoperating liabilities (such as bonds payable) and in stockholders' equity accounts other than net income or loss. They include the use of cash to retire bonds. They include the use of cash to pay dividends.

Which of these are true, in regard to investing activities in the statement of cash flows? More than one answer may be correct.

They relate primarily to the purchase and sale of noncurrent assets. They include the use of cash to acquire land, buildings, and equipment.

Identify a true statement about extraordinary items.

U.S. GAAP states that extraordinary items should not be shown as a separate category for financial reporting purposes.

What key interpretations are typically made from the statement of cash flows? More than one answer may be correct.

Whether net cash flows provided by operations exceed the company's cash used for investing activities Whether the company's cash balance increased or decreased during the year

The financial statement effects of recognizing cost of goods sold include:

a decrease to current assets. an increase to expenses. a decrease to net income.

The income or loss from discontinued operations is reported (before/after) income taxes and shown separately after a subtotal amount labeled income from (continuing/extraordinary) operations.

after, continuing

When revenues are earned, the effects on the financial statements typically include:

an increase to net income an increase to current assets

Advertising expenditures and research and development costs are recorded:

as expenses in the period incurred.

The new contract-based model of revenue recognition (IASB 15) employs an (asset/gain/liability/loss) and (asset/gain/liability/loss) approach rather than using the old realization and earned criteria.

asset, liability

Revenues generally are measured by the amount of (stock/inventory/cash) received or expected to be received from the transaction.

cash

In calculating diluted earnings per share, adjustments may need to be made to basic earnings per share with respect to:

convertible bonds. convertible preferred stock. stock options.

Ordinarily, items shipped FOB (shipping point/destination) will have freight prepaid, and items shipped FOB (shipping point/destination) will be shipped freight collect.

destination, shipping point

A firm may be required to report (basic/diluted) earnings per share if it is possible that the conversion of its long-term debt (bonds) or preferred stock into common stock could reduce (basic/diluted) earnings per share of common stock outstanding.

diluted, basic

When a segment, or major portion of a business, is disposed of, it is appropriate to disclose separately the impact that the (extraordinary/discontinued) operation has had on the current operations of the firm, as well as its impact on any previous year results that are shown for comparative purposes.

discontinued

When an entity has completed, or substantially completed, the activities it must perform to be entitled to the revenue benefits (the increase in cash or some other asset, or the satisfaction of a liability), the (realization/earned/measurable) criterion has been met.

earned

Investing activities in the statement of cash flows:

include the receipt of cash from the sale of land, buildings, and equipment. include the purchase and sale of long-term investments in debt and equity securities of other companies.

Gains are reported as other (assets/income/equity) after a firm's operating expenses have been shown and income from operations has been reported.

income

Identify a subtotal that is reported in a multiple-step income statement.

income before taxes

Gains are (increases/decreases) in an entity's net assets resulting from incidental transactions or nonoperating activities.

increases

Net income attributable to noncontrolling interest:

must be clearly identified and presented on the face of the income statement. is normally subtracted from net income to arrive at net income attributable to the parent company.

Most firms report the statement of cash flows using the indirect method because _____.

operating activities information reported under the direct method is not so readily determinable

Under the new model of revenue recognition (IASB 15), revenue is recognized based on the satisfaction of (service/performance/market) obligations.

performance

Advances in point-of-sale technologies (such as standard bar code scanners used by retail stores) have allowed even small merchandising firms to achieve (periodic/perpetual) inventories.

perpetual

Some (periodic/perpetual) inventory systems are even tied in with the firms' suppliers so that when inventory falls to a certain level, a reorder is automatically placed.

perpetual

If cash is not expected to be received within a year, revenue usually is measured by the (present/future/market) value of the amount expected to be received.

present

When the outflow of cash related to the expense will not occur within a year, it is appropriate to recognize the (future/present/market) value of the future cash flow as the amount of the expense.

present

The primary purpose of the statement of cash flows is to _____.

provide relevant information about the cash receipts and cash payments of an enterprise during a period

Financing activities in the statement of cash flows:

relate primarily to changes during the year in nonoperating liabilities and stockholders' equity accounts. include the purchase and sale of treasury stock. include the issuance of bonds and common stock.

The (seller/buyer) incurs the freight cost for shipments made FOB destination; the (seller/buyer) incurs the cost of shipments made FOB shipping point.

seller, buyer

The statement of cash flows _____.

shows why cash changed during a period by reporting net cash provided or used by operating, investing, and financing activities

Inventory (shortage/shrinkage/salvage) is the term used to describe inventory losses from obsolescence, errors, and theft and usually is included in cost of goods sold unless the amount involved is material.

shrinkage

Starting with gross sales, the sales returns and allowances and sales discounts are (added/subtracted) to arrive at (net/total) sales for reporting purposes.

subtracted, net

The amount of an expense is measured by:

the cash or other asset used up to obtain the economic benefit it represents.

True or false: Net income attributable to noncontrolling interests is reported separately from net income (or net earnings) attributable to the reporting entity; the latter amount is reported in total and on a per share of outstanding common stock basis

true

True or false: The principal categories of other operating expenses frequently reported on the income statement can be combined in a variety of ways for financial reporting purposes, such as, "Marketing and selling expenses," "Administrative expenses," and "Research and development expenses."

true

Some of the key interpretations to be made from the statement of cash flows include the determination of:

whether the company has generated positive net cash flows from operations. whether net cash flows provided by operations are sufficient to pay adequate dividends to the company's shareholders. whether the relative totals of operating, investing, and financing cash flows were similar to those observed in the prior year.